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Microsoft Pins TV Hopes on Xbox

Many in the media industry have wondered whether Microsoft’s Xbox gaming console represents a looming threat to the cable industry, given its growing library of video options, including TV and movie rentals and Netflix streaming. It turns out Xbox might replace the cable box. But it may turn out to be an ally to cable.

As Microsoft readies the launch of Xbox TV, the company is exploring a partnership with the biggest cable distributor, Comcast, and upstart Verizon Fios. According to multiple sources, Microsoft would rather not pick a fight with cable and would prefer to think of Xbox as a distribution device for cable TV.

While details are still emerging, the talk is that consumers could subscribe to Comcast or Fios TV packages directly through their Xboxes, without the need to install a set-top box. And given that most Xboxes are Web-connected, the partnership could result in a more sophisticated programming guide and other bells and whistles, such as better targeted advertising. The partnership may even incorporate the technology from Kinect, Xbox’s wildly popular gesture-based gaming platform.

Xbox has already moved into the TV distribution world. Last year the company launchd a partnership with AT&T’s U-Verse service. But adding Comcast’s footprint could accelerate the growth of the digital living room and provide cable companies with access to younger entertainment-junkie demographic and to game-loving families. There are over 55 million Xboxes in the market, and Xbox Live, the company’s Web entertainment hub, claims 35 million paying subscribers.

One source characterized the Comcast and Verizon Xbox deals as imminent, perhaps within a month, while another said the timing was more fluid. But observers said that making overtures to cable is wise.

“They are in a very good place right now,” said Dario Raciti, director of Zero Code, OMD’s gaming division. “If there is a time to expand Xbox, it is now.”

Now might be the time to get in bed with cable. But Microsoft isn’t stopping there. Per sources, the company is also actively looking to partner with TV manufacturers, including Samsung. The plan is to build some sort of Window Live gaming hub into Samsung TVs, which would be accessible with a basic Web connection.

Plus, although various reports have declared Microsoft out of the bidding for Hulu, the company is still keeping its eye on the company, said sources. The thinking is that Hulu could serve as a perfect complement to Xbox LIve, while enhancing Microsoft’s developing TV suite.

Executives at Verizon declined to comment, while Comcast officials could not be reached. A Microsoft rep said, “”As we announced at E3, we are committed to bringing TV entertainment to Xbox around the world through partnerships with industry leading operator and content partners. We look forward to sharing more partner news in the near future, but we have nothing to announce at this time.”